Question

Suppose the Green Elf Corporation's common stock has a return of 12%. Assume the risk-free rate is 4%, the expected market return is 9%, and no unsystematic surprise affected the Green Elf's return. The beta for the firm is:

Answer 1

Answer:

1.6

Explanation:

Given that,

Stock has a return = 12%.

Risk-free rate = 4%

Expected market return = 9%

Stock return = Risk free return + Beta of Stock × (Market return - Risk free return)

12% = 4% + Beta of Stock × (9% - 4%)

8% = Beta of Stock × (5%)

8% ÷ 5% = Beta of Stock

1.6 = Beta of Stock

Therefore, the beta for the firm is 1.6.